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05/28/2007

Immigration Reform-BECKER

After extensive debate, the United States Senate last week passed a comprehensive immigration bill. I believe the bill is a mixed bag of good and bad reforms that pleased none of the vocal interest groups.
As I have argued before (see my blog entry on October 16, 2005), the United States would benefit greatly from immigration of many engineers, computer experts, scientists, and other highly skilled men and women. The increased value of skilled workers in the economy is reflected in the growth in the earnings during the past 25 years of more educated and other skilled workers relative to earnings of the less educated and skilled. The higher value placed on skilled workers is due both to the development of computers, biotech, and other technologies that favor skilled workers over less skilled workers, and to the advantages in a global market of producing skilled goods.
Large-scale immigration of more educated and other skilled workers would help satisfy the economy's thirst for skilled workers. By increasing the supply of skilled workers, such immigration would also reduce the widened earnings gap between more and less skilled workers. Skilled immigrants have many other advantages: they have very low crime rates, they are young and employed, they do not draw unemployment compensation benefits or social security benefits, they contribute a disproportionate amount in taxes, and their children generally do well in school.
By "large-scale" I mean one million or more skilled immigrants per year. This may seem like a lot, but currently the United States takes about 1 million legal immigrants each year. With a total population of over 300 million, this country should not have difficulties in absorbing one million skilled immigrants annually. The Senate bill does provide for 200,000 temporary guest workers per year plus a much smaller number of employment-based visas each year for the next 10 years. These "temporary" workers would in fact have an easy road to citizenship. Even if all these slots were filled by skilled workers-and the bill gives little if any priority to skilled workers- the numbers admitted each year would be far below my goal of a million skilled workers per year. So the Senate bill is on much too small a scale, and gives insufficient emphasis to skilled workers, which is where immigration reform should be centered.
The hardest challenge to immigration reform is to decide what to do with the 8-12 million illegal immigrants already here. The bill proposes a three-tier policy. Illegal immigrants who have been in this country for 5 years or more (estimated at over 6 million persons) would be granted immediate amnesty. Illegal immigrants who have been here between two and five years (several million more illegals) could with somewhat greater difficulty arrange to receive amnesty and lawful work permits. The roughly two million illegal immigrants here less than two years would not get amnesty, and they would be deported if apprehended.
It will be a nightmare enforcing this provision since it will impossible to determine for many immigrants whether they have been here illegally two years or more. Those who have been here less than two years have a very strong incentive to claim that they have been here much longer. One can imagine the lawsuits and other enforcement problems in trying to determine the length of stay for person who crossed illegally, and have held jobs in the underground economy where they were paid in cash with little record keeping.
In addition to these practical difficulties, amnesty is a bad approach conceptually. Granting amnesty now attracts additional illegal workers in the future since they anticipate future amnesties that would legalize their being here. The previous major amnesty of illegal entrants in the 1980's was not forgotten in the immigrant communities. These communities are kept closely informed about all the details of new proposals on immigration.
As Posner indicates, amnesties are common in other areas, and are used, for example, to collect back taxes. The attractions of amnesties are due to what economists call "time inconsistency". Amnesties do encourage violation of tax and other laws, and ex ante are undesirable. However, after the fact, amnesties are useful in order to get more tax revenue, recognize the large numbers of illegal residents already in a country, etc. So this conflict between what is desirable when formulating policies, and what is desirable after policies have been in effect for a while, is what explains the popularity of amnesties. Despite the after the fact advantages of tax amnesties, immigration amnesties, etc., countries are likely to be better off if they could avoid having them at all.
An approach better than immigration amnesties is to adapt to the illegal immigrant case my suggestion to sell the right to immigrate (see the blog entry on February 21, 2005) . Under this plan illegal immigrants already here could legitimatize their status, but they would be subject to an additional penalty by being forced to pay a fee, or fine, to the federal government. The exact amount would have to be determined, but suppose it would be $10,000-$15,000. Any illegal immigrant who could pay that fee would be granted immediate legal status similar to that granted by the Senate bill to those here five or more years. If ten million illegal immigrants each paid $10,000, that would aggregate to $100 billion, or about 5 percent of the total federal government budget. Immigrants who did not buy their legitimacy would be subject to arrest and deportation, in the same way as the Senate bill would treat those immigrants who have been here less than two years.
Selling the right to stay to illegal immigrants would be recognition of the reality that America is highly unlikely to deport more than a small fraction of the millions of illegal immigrants who are already here. Requiring illegal immigrants to pay a fine to buy the right to stay would not give them a free ride, but would impose a cost on their being here illegally. By contrast, the amnesty approach in effect tells illegal immigrants they can stay without cost even though they broke American laws that determine who has the right to come here. At the same time, many illegal immigrants would jump at the opportunity to pay to stay here if that would legitimatize their immigration

Comments

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I think the optimal solution economically would be to negotiate a treaty with Mexico and Canada that would allow a Citizen of any of the three countries live, work and own land in any of the countries and pay taxes accordingly.

Given that amnesty is basically a given, the real question is about enforcement of whatever immigration bill is passed and the deterrence & prevention of future illegal immigration. Since current illegal immigrants will likely be put on a path to citizenship anyway, I am repeating my proposal here. Since employers have incentive to hire cheap illegal labor, and illegal immigrants have little incentive to come forward, enforcement would be extremely costly. Instead, an immigration bill should be structures so as to discourage employers from hiring illegal labor. So, in addition to amnesty for current illegals which expires [say 12/31/2007], law should dictate that any illegal immigrant working for a US employer after a certain date [say 1/1/2008] is entitled to 1) legalization and a path to citizenship and 2) a large lump-sum payment from their employer [$10-20K]. The effect of this rule would be twofold: first, it would significantly lower enforcement costs, since illegal immigrants before the date would report before the date to get the benefits of amnesty, and those working after the date would report because they would only get legalization and a payment; second, it would strongly discourage employers from hiring illegal immigrants, which would deter future illegal immigration [future illegal immigrants would be eligible for the benefits of legalization & payment - but they'd have to find someone to hire them first].
Rather than try to fight two groups [illegal immigrants and employers] the government can simply structure the incentives in such a way as to deter future immigration while rooting out all current illegal immigrants.

I was at a brown bag lunch where I first heard your argument that immigration should be priced. I had not thought of immigration in those terms. To be honest with you, it is an elegant solution to the problem of importing skilled labor. To trumpet the "Chicago" way, it brings a difficult topic into focus by concentrating on value. It brought home why I did my MBA at the GSB.

What no one does talk about here is unskilled labor. What do we do about the poor that illegally enter simply because they can have a better live here? This is a trickier question.
They cannot afford to pay any price to come in simply because they don't have the means to pay it.

Would landscape companies be willing to pay $10000 bucks a worker? Any other unskilled labor type companies? I doubt it, but it would be worth researching.

Amnesty is not a good answer. It makes immigrating illegally "free", and there should be no such thing as free in anything.

If current work force composition is not altered by year 2019 projections say the country is in deep trouble with national deficits/debt & lack of workers to support the social security system. Both Becker and Posner admirably write on the topic (please replace the non smiling image of Judge Posner...viewing the stern image reduces the happy planet index by an unmmeasurable margin).....whatever is done with illegal immigration it appears a problem like global warming--we may be doing too little too late.....

"After extensive debate, the United States Senate last week passed a comprehensive immigration bill."

I don't think Senate has passed the immigration bill. I think Senate is still discussing the pros/cons and amendments. I don't think it will become a law based on what happened to last year's immigration reform bill.
-i

1) ‚ÄúBy increasing the supply of skilled workers, such immigration would also reduce the widened earnings gap between more and less skilled workers.‚Äù
Where does it say that the gap is widening? Provided that it is widening, why is it a source of concern, particularly since, at least to my knowledge, the incomes of BOTH skilled and unskilled workers have been growing?
One related study is that of CBO on the Changes in The Economic Resources of Low-Income Households with Children. Somewhere on their website there was also a more comprehensive study on the changes of earning of the U.S. population. Even by assuming that low-income households are also the unskilled households (fairly accurate assumption), the data showing an increase in their income during the past 16 years naturally also shows an increase of low-skilled workers‚Äô income.
So why is the gap important?

2) Whatever the new bill, I think it should not suppress legal immigration any more than it is. Preferably, it should increase the number of visas, since the continuing influx of illegals speaks only of the shortage of legal ways to enter. However, according Dr. Becker, the current bill suppresses legal immigration.

"If current work force composition is not altered by year 2019 projections say the country is in deep trouble with national deficits/debt & lack of workers to support the social security system."

Here is how Social Security will be "saved." The range of people taxed on Social Security benefits will be increased (more taxes), and the age of retirement will be increased (fewer benefits). Maybe they'll throw in a 1% increase in the payroll tax rate and also extend the amount of income taxed for Social Security.

Social Security is a Ponzi Scheme, not an investment plan. Don't expect significant real returns on your money.

Immigration of unskilled immigrants create new jobs that can allow skilled workers to worry less about their lawns and laundry and concentrate on utilizing their skills. It is the application of specialization and Comparative Advantage.

Secondly, many of the children of unskilled workers living in the US will become skilled workers. This is the historical pattern, and I see it happening today.

At the least their kids will know English, but many of the kids will make good use of the 12 years of free education and low-income financing of state college education.

One can be most sure that the first and second generation immigrants will be more productive for the global economy in a high economic freedom country like the US than if they had stayed in a low economic freedom country.

I see a problem with buying the legitimate status. If the price would be 10-15,000 as suggested here, this would be 40-60,000 for a family of four.

Many of the illegal immigrants do not have this money. It would be interesting to see whether banks would get involved in lending money for these purposes but I would rather say they would not. In that case, these immigrants, rather desperate to stay in the U.S., would turn to any semi-legal way of borrowing the required amount - presumably from some mafia-like gangs who would lend at excessive interest rates.

The problem that could arise is in strongly increased crime rates among these people once they have to pay back and they won't be able to obtain the required amount legally.

These people, now illegal immigrants, could end up in a much worse of situation, owing money to these usurious gangs.

I am not able to quantify this effect but definitely would not overlook it.

Becker, under your plan, what incentive would an illegal worker have to pay $10,000 to be legitimized? They already have everything they need- they can get jobs, health care, education for their children, driver's licenses, credit cards, social security numbers... Sure, they face the potential threat of deportation, but the reality of that is so small that it is about as an effective of a deterrent as the death penalty in its current form.

I love it when Becker says: "By increasing the supply of skilled workers, such immigration would also reduce the widened earnings gap between more and less skilled workers."

Gee, poor people, you don't have to feel so bad because the skilled persons will have their wages reduced too with a greater supply of skilled foreign professionals...and the earning gap between poor and skilled professionals will decrease, because the skilled professional wage rate will decline. Whoopee.

How about increasing the supply of skilled professionals by supporting higher education, and improving secondary education in this country, so everyone advances.

I think that banks may enter into lending agreements. Employers may also pay to attract top talent. This goes back to Coase, if two parties can bargain efficiently without interference, they will reach the best economic solution for society. It really doesn't matter who pays.

The question then becomes does it create an employment contract. Employment contracts are very difficult to enforce. If an employee leaves the firm to return, or to go to another company, the company may be able to write it off. The employee may also negotiate with another employer to pay off his previous employer. Again, it doesn't really matter, as long as they can bargain freely.

I am a skilled foreigner currently **legally** living in US on a student visa. I am about to complete a PhD in computer science, at one of the top 3 computer science departments in this country. I published several papers in prestigious journals. I won awards. By all means, I am a successful person, probably one of the top experts in my area of computer science in the world. I have lived in US for 6 years, followed all immigration rules and limitations (and there are plenty; for example, there were times where I didn't take internships due to immigration reasons). I worked very hard to get my PhD. I come from a small European country, with a very small number of immigrants to US. I have specific skills that are very rare and will likely bring very significant benefits to whatever company hires me. The only way that I can possibly see myself as a threat to anybody in this country is by the fact that I will take one job that could otherwise go to somebody else. If it would at all. I am on the job market and companies are making up special positions for me, positions that otherwise likely would have never existed. So, what does the proposed immigration reform look like to me? Honestly, it doesn't look too good. H1B visas will be even more restricted than today. The cap will remain valid even for holders of computer science PhDs from the best universities in the nation. It is unclear if the 20,000 extra H1Bs for holders of US Masters degrees of higher will remain in effect. Dual intent on H1B will be canceled, making visa renewals trickies, travel abroad less certain, plus exposing me to double taxation (from my country and US) as I will have to keep a permanent residence abroad to maintain legal US immigration status. And honestly, I am seriously thinking of going back to my home country anyway. Fed up with all this immigration fiascos. The new point system will give many points for family ties in US (which I don't have), there is a huge green card backlog, etc., so it's unclear how my good work, papers, knowledge, etc., will help me, if at all. Also, I am bothered by the fact that most illegal aliens will be able to obtain green cards after paying a small fine. Can I go illegal too please and pay $10,000 for a green card? I would take that option any time, as the other scenario is to patiently wait for 3-6 years, without being able to change employers (What if I don't like my boss? What if my company goes under? etc.). Then I hear that while on H1B one cannot get promoted into a managerial position, since one was originally hired as en engineer. That if one loses the job, that one has to leave the country immediately. And so on. What about if I was dating an American girl? What about if I really liked my life in US? What about if my best friends were here? It is constant life under the gun. I sometimes wonder why I came to this country, if even the truely best and brightest foreigners cannot easily get green cards. Is US just going to suck me dry, make me work long hours, and then kick me out. As a matter of fact, I started looking for jobs in Canada, just because I am getting sick of how skilled immigrants are treated in this country. Every day, I tune into the news, follow the immigration reform, and worry about what this will mean for me. Why not make a separate bill just for skilled immigrants? If there is to be amnesty, why not give green cards to ALL immigrants (say who have been here for more than x years), both legal or illegal? Isn't it absurd that breaking a US immigration law will give somebody an actual advantage in winning a US green card? Why not fine employers that hire illegal aliens? Who/what political lobby is protecting those employers? Why are there so many forums out there where people are openly negative against skilled immigrants? Is this former co-workers who are jealous for losing their jobs? It makes me feel unwelcomed in this country. Six years ago I entered this country believing that it rewards talent and hard work, that immigrants have a real chance here, etc., and now I find myself in a very uncertain situation, with unclear immigration future... unclear if I am even welcome here.

On ‚Äúpricing immigration:‚Äù I have heard many economists suggesting various ways of ‚Äúselling the right to enter the U.S.,‚Äù including auctioning off visas. Partly, the current policy already do this by, for instance, collecting a fee for H1-B visas (the new bill would increase it from $1500 to $5000). There are several reasons why pricing immigration makes sense, which have been discussed here and elsewhere. But I want to suggest another way of looking at it, especially since several people here have touched upon this.

Pricing the right to enter the country would essentially be as placing tariffs on imports of labor and human capital. So when a U.S. company pays $X and ‚Äúbuys‚Äù a right to import a computer scientist from abroad‚Äîthe H1-B visa (or if the scientist pays it, no difference)‚Äîit basically pays an import tariff. We already have import quotas (the number of visas are capped), so adding taxes on imports of labor and skill will further restrict our access to these valued resources.

I think this problem becomes especially amplified in light of a particular recent development. The world becomes increasingly richer. As I think Dr. Becker pointed out, as foreigners become even 1/3 as rich as Americans, the number of those willing to come to the U.S. drops drastically. In other words, the demand for access to the U.S. becomes increasingly price elastic: even small increases in the difficulty and the price of getting a U.S. visa will result in large drops in the number of those wanting to come here, many of whom are either established or potential specialists. We can afford high prices on immigration when the rest of the world is much poorer than us, but as Indias and Romanias of the world become increasingly profitable for workers, restrictive immigration takes a larger toll on us. The history of the 20th century shows a good example how we benefit from sucking in the brain drain of war-torn Europe, Asia, and Communist Russia. One only needs to look at the number of physicists, mathematicians, and economists the U.S. imported during 1900s from Europe.

On the other hand, however, I have long entertained the idea of making the residence in a country tradable. In the more extreme case, citizens of a country would be able sell their citizenship to others. Citizenship then would be something like a corporate stock, the price of which would indicate how attractive it is to live in the given country. Maybe then we would be able to do away with some of the problem democracies have today.

Furthermore, when we think of priced visas in terms of import tariffs, it becomes less clear who pays the price of visa. Import tariffs are one kind of sales tax. As we know, who pays the taxes does not depend on who actually hands the money in, it only depends on the price elasticity of demand for the good or service being sold.
Suppose a U.S. company desparetly needs a computer scientist from abroad, more desparetly than the scientist wants to work in the U.S. This company then has an inelastic demand for computer scientists, and is willing to pay higher prices. In this case, the (U.S.) company will end up paying the price of visa, even if the scientist actually hands it to the U.S. gov. The company will simply reimburse him with higher salary.
If it is the immigrant who has an inelastic demand for employment in the US (perhaps because he's from an extremly poor country and has skills very common among Americans), then it is him who that will pay for the visa.
So at times, with such policy, we'll end up taxing ourselves to get what we need. Am I correct?

I hate to say this, but you folks don't know the first thing about the bill pending before the Senate. There is no "three-tier" structure. That was last year's bill.

Beyond that, you have little idea of what Amnesty means. If I steal a car, Amnesty will keep me out of jail, but I don't get to keep the car.

The Senate bill provides Amnesty and let's the illegals keep the ‚Äúfruits of their crime‚Äù by staying in the US legally. It's really Amnesty with the lottery jackpot thrown in.

Robert Rector of the Heritage Foundation has shown that illegal immigration is a disaster for taxpayers. The current bill will cost the American people $2.5 Trillion (with a "T") over a period of years.

Given the vast negative externalities associated with illegal immigration, economic rationality dictates that large resources be allocated to stopping it, not rewarding it.

By the way, Eisenhower removed 1-2 million illegals with just 1000 agents back in the 1950s. It wasn't very hard either. The immigration reform community has outlined plans to get the illegals to leave on their own for tiny amounts of money.

To quote from someone else, "it is amazing how little economists think about economics, when the subject is immigration".

For a serious discussion of the Amnesty bill, see "The Bush-Kennedy-McCain Sham(nesty)" (http://borjas.typepad.com/the_borjas_blog/2007/05/the_bushkennedy.html) by George Borjas (the foremost immigration economist in the US).

I hate to say this, but you folks don't know the first thing about the bill pending before the Senate. There is no "three-tier" structure. That was last year's bill.

Beyond that, you have little idea of what Amnesty means. If I steal a car, Amnesty will keep me out of jail, but I don't get to keep the car.

The Senate bill provides Amnesty and let's the illegals keep the ‚Äúfruits of their crime‚Äù by staying in the US legally. It's really Amnesty with the lottery jackpot thrown in.

Robert Rector of the Heritage Foundation has shown that illegal immigration is a disaster for taxpayers. The current bill will cost the American people $2.5 Trillion (with a "T") over a period of years.

Given the vast negative externalities associated with illegal immigration, economic rationality dictates that large resources be allocated to stopping it, not rewarding it.

By the way, Eisenhower removed 1-2 million illegals with just 1000 agents back in the 1950s. It wasn't very hard either. The immigration reform community has outlined plans to get the illegals to leave on their own for tiny amounts of money.

To quote from someone else, "it is amazing how little economists think about economics, when the subject is immigration".

For a serious discussion of the Amnesty bill, see "The Bush-Kennedy-McCain Sham(nesty)" (http://borjas.typepad.com/the_borjas_blog/2007/05/the_bushkennedy.html) by George Borjas (the foremost immigration economist in the US).

Mr. Econotarian says Social Security is a Ponzi scheme. I think that the importation of cheap labor is a Ponzi scheme too.

What do economists say is going to happen when the scheme plays out over the next few hundred years as the planet is economically homogenized and there are no remaining sources of cheap labor? Will we be letting in aliens from other planets to do the jobs that Earthings just won't do?

How come no one ever frames the problem of illegal immigration as a undemocratic wealth transfer from the tax base to employers of illegals?

Employers pay less for labor and the broader tax base bears the externalities of the worker's tax contributions being insufficient to cover their heath care, schooling, etc...

Also why is the focus on the difficulty of policing? There are two ways to increase compliance. Why not enact far stiffer penalties for hiring illegal immigrants? Illegal nanny = 20K fine. Illegal car wash employees = 20K fine per violation. Forget deporting nonviolent illegals. They come here b/c work is so easy to get now. If they cannot get jobs, they will stop coming illegally.

Second, it seems obvious that we need to overhaul the outdated immigration quotas (likely w/ input from the dept of labor) to keep up w/ economic needs.

Finally, politics aside, doesn't illegal immigration posses a huge problem for policy planning? A 10% inaccuracy in the number of people using the roads, water, sewage of a city makes a huge difference. And where does this 12M estimate come from? It seems there is no way of estimating that number properly and being from California, I would venture to say it is far too low.